Naïve? Casual? What?

When I was a cricket umpire, a colleague recalled how he had given one batsman out for handling the ball, and another for hitting the ball twice. These are rare kinds of dismissal: what was even odder still, they happened in the same over.

Which is a roundabout way of saying, sooner or later in any game you see everything. Last year, for example, I noted that the Commerce Commission was having an unusual run of (equally rare) s47 investigations - where the Commission looks at potentially anti-competitive mergers that should have come in for clearance or authorisation, but didn't.

There had been one in 2008, one in 2012, one in 2015. But since March 2018, there have been eight of them, with the latest announced last week. The full list is here.

We've also just learned what happened to one of them, First Gas's acquisition of GasNet's gas distribution pipeline network in Papamoa (suburban Tauranga). GasNet, ultimately owned by Whanganui District Council, had a local gas distribution network, and had started to eye up the gas distribution possibilities in new sub-divisions in Papamoa. Why a local authority thinks it's a good use of its ratepayers' resources to get into the gas pipeline game on the other side of the country is beyond me, but in any event they went for it. And got squashed like a bug.

First Gas, owner of the (ex Vector) North Island high-pressure gas transmission pipeline as well as of lots of local lower-pressure distribution pipeline networks, was not at all pleased. It tried to buy GasNet out with a succession of offers. And it threatened (and went some way to implement) laying its own pipes alongside GasNet's. It would have been uneconomic for both of them but signalled their willingness to play a game of mutually assured destruction. And First Gas used carrots and sticks on the sub-division developers: the judgment says at [22] that "First Gas also advised the developer that, if its offer was not accepted, it would lay the pipelines anyway and this retrofitting [digging up established development] would cause considerable disruption". GasNet caved, agreed to be bought out, and in addition signed a restraint of trade not to re-enter the Bay of Plenty for five years.

First Gas was bang to rights under s47. Whatever the market was - at [37] "the construction of distribution networks in new subdivisions in one or more of the following areas: the areas served by the Papamoa 2 delivery point; the areas served by all delivery points in Papamoa and Mt Maunganui; the Bay of Plenty" - First Gas was taking out its competition there. And the restraint of trade fell foul of s27: at [39] it "had the purpose, effect or likely effect of removing current competition in the market between First Gas and GasNet and of preventing future competition between First Gas and GasNet for at least the period of the restraint".

Bottom line, $3.4 million penalty. The judge said at [51], "The penalty together with the purchase price mean that the assets acquired will not be profitable over their life time. In the context of a business which is almost entirely regulated, this means First Gas will incur a material loss from the acquisition".

Fair enough, too. Yes, there was a remarkable naïveté  about First Gas's actions: at [30], First Gas "did not appreciate there were competition implications", at [47] "it was unintentional – First Gas did not appreciate there were Commerce Act implications despite the regulatory regime to which it is subject". And yes, you've got to give credit to First Gas for cooperating with the Commission: at [50], "Once alerted to the Commission’s concerns First Gas was entirely cooperative and this has led to an early and agreed resolution to the matter". But there's no doubt either about (at [47]) "a concerted effort on a reluctant seller to remove a competitor. First Gas was successful in its effort, and the effect on the market is on-going and is potentially permanent. The conduct has removed existing competition and is likely to have removed future competition in the market for the foreseeable
future". Plus there's whatever demonstration effect it might have in other distribution markets where competitors might have been thinking of giving it a go.

As I said last year, a voluntary notification scheme and self-policing of mergers is a good way to go. It's "one of those bits of social capital that lubricate the free flow of business and avoid the heavy-handed alternatives. Fingers crossed that this mini-outbreak of s47 investigations is just happenstance, and not a sign of a change in the times".

But now eight of the things have surfaced. It could still be happenstance, I suppose, though the odds are beginning to drift out.  It could reflect nothing worse than a more widespread First Gas style naïveté: in New Zealand we tend to informality in business and don't always cross the i's and dot the t's. And nothing may come of some of these s47 investigations: everything might be hunky dory, nothing to see, move along.

But at this stage I'd also guess that the Commission must be wondering if it should have put more effort into its market intelligence over the years. And the business community, if it's been chancing its arm, ought to put more effort into voluntary compliance. It's in businesses' own interest: the alternative, compulsory merger notification, would be clunkier, slower, and more expensive.